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MGM UP ON THIS?

This note was originally published October 18, 2012 at 09:36 in Gaming

 

MGM China announced that they accepted a Land Concession Contract from the Macau government.  The stock is bid up 6% on this news.  We don’t think people fully understand the process of developing a new casino property in Macau.  MGM Cotai still needs to be formally Gazetted and then obtain a construction permit before the 3 year construction timeline can even begin.

 

Here is the timeline for Wynn Cotai:

 

Land Concession Contract:  Sept 12, 2011  

Formal Gazette approval:  May 2, 2012

Building Permit:  ?????

 

Wynn Cotai hasn’t even gotten its construction permit yet.  If this same timeline holds for MGM, then we should expect Gazetting in 8 months and who knows when for the building permit.  Thus, it should be at least a year and more likely two before construction can even begin and 4-5 years before the property would open.  Our original expectation on the timing of the MGM Cotai opening was 2017-2018 so today’s announcement doesn’t change that.

 

We would fade this news.


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HEI: 64.1% Chance of Obama Reelection - HEI


INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE

Takeaway: A missing state being double counted is most likely to blame for the moonshot increase in claims this morning. Expect a reversal next week.

***The following note comes from our Financials team led by Managing Director Josh Steiner. If you aren't yet receiving their work on the space, including their seminal work on the U.S. housing market, please email if you're interested in setting up a trial.***

 

 

Did the Dept of Labor Double Count the "Missing State"?

This week's 49k WoW increase in initial claims is suspicious, just like last week's 28k decline. However, we suspect that the "missing state" from the previous week's data may have been double-counted this past week. Assuming that there was in fact a missing state, it's odd then that the previous week was not significantly upwardly revised. The number was upwardly revised by just 3k from 339k to 342k. It appears that instead, that missing state just lumped two weeks of data into this most recent week, which explains the moonshot increase of 49k this week. To be fair, we haven't seen anything to confirm our theory, but we see no other plausible explanation. As such, we would expect a roughly 25k decrease next week to around 363k, which is essentially in-line with the rolling average of late. For reference, it's also possible that Columbus Day (last Monday) caused some further dislocation in the series.

 

The bottom line is that the trend in jobless claims, i.e. the 4-week rolling average, is still trending lower, as we show in the first chart below. Notice that even after including this morning's huge increase in claims, the rolling average has only moved back to its trendline, which still has a negative slope. This is consistent with our thesis that there's a tailwind distortion in the data that will persist through February, 2013, making the labor market and economy appear stronger than they really are before reversing course in March 2013 and deteriorating through August 2013.

 

The Data  

Initial claims rose 49k last week to 388k (but rose 46k after a 3k upward revision to the prior week's data). Rolling claims rose 0.75k WoW to 365.5k. On a non-seasonally adjusted basis, claims rose 29k to 359k.

 

Hedgeye Take 

The YoY change in the rolling NSA series was roughly flat at -10.0%. This compares with -10.3% in the prior week and -7.4% in the week before that. This larger YoY improvement in the rolling non-seasonally adjusted data is meaningful as it indicates there is real improvement currently occurring in the employment environment.

 

Lastly, the S&P and claims diverged again this week. For reference the current level of claims would imply an S&P level of 1372, which is 6% lower than current levels.

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 1

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 2

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 3

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 4

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 5

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 6

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 7

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 8
 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 9

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 10

 

Joshua Steiner, CFA

 

Robert Belsky


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Chinese Oil Imports Down Again

China’s imported less crude oil in September 2012 than it did a year ago. It imported 20.08mm tonnes of crude, which is a -1.8% drop on a year-over-year basis but a sharp improvement from the -12.5% drop that occurred in August. Since data on a month-to-month basis is quite volatile, we look at it on a three month moving average. The three month average for July, August, and September is -3% year-over-year – the lowest rate of change since the financial crisis. We maintain that the slowdown in China is not yet reflected in the oil price.

 

Chinese Oil Imports Down Again  - china normal


INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE

Takeaway: A missing state being double counted is most likely to blame for the moonshot increase in claims this morning. Expect a reversal next week.

Did the Dept of Labor Double Count the "Missing State"?

This week's 49k WoW increase in initial claims is suspicious, just like last week's 28k decline. However, we suspect that the "missing state" from the previous week's data may have been double-counted this past week. Assuming that there was in fact a missing state, it's odd then that the previous week was not significantly upwardly revised. The number was upwardly revised by just 3k from 339k to 342k. It appears that instead, that missing state just lumped two weeks of data into this most recent week, which explains the moonshot increase of 49k this week. To be fair, we haven't seen anything to confirm our theory, but we see no other plausible explanation. As such, we would expect a roughly 25k decrease next week to around 363k, which is essentially in-line with the rolling average of late. For reference, it's also possible that Columbus Day (last Monday) caused some further dislocation in the series.

 

The bottom line is that the trend in jobless claims, i.e. the 4-week rolling average, is still trending lower, as we show in the first chart below. Notice that even after including this morning's huge increase in claims, the rolling average has only moved back to its trendline, which still has a negative slope. This is consistent with our thesis that there's a tailwind distortion in the data that will persist through February, 2013, making the labor market and economy appear stronger than they really are before reversing course in March 2013 and deteriorating through August 2013.

 

The Data  

Initial claims rose 49k last week to 388k (but rose 46k after a 3k upward revision to the prior week's data). Rolling claims rose 0.75k WoW to 365.5k. On a non-seasonally adjusted basis, claims rose 29k to 359k.

 

Hedgeye Take 

The YoY change in the rolling NSA series was roughly flat at -10.0%. This compares with -10.3% in the prior week and -7.4% in the week before that. This larger YoY improvement in the rolling non-seasonally adjusted data is meaningful as it indicates there is real improvement currently occurring in the employment environment.

 

Lastly, the S&P and claims diverged again this week. For reference the current level of claims would imply an S&P level of 1372, which is 6% lower than current levels.

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Seasonality

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Raw2

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Rolling

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - NSA

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - NSA rolling

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - S P and Claims

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Fed

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - YoY

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Recessions

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Rolling Linear

 

Yield Spreads

The 2-10 spread rose 12 bps WoW to 153 bps. So far 4QTD, the 2-10 spread is averaging 1.44%, which is up 7 bps relative to 3Q12.  

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 2 10

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - 2 10 QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over multiple durations. 

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Subsector performance

 

INITIAL JOBLESS CLAIMS: MORE ERRORS IN THE SERIES - NEXT WEEK SHOULD IMPROVE - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 

 


MGM UP ON THIS?

MGM China announced that they accepted a Land Concession Contract from the Macau government.  The stock is bid up 6% on this news.  We don’t think people fully understand the process of developing a new casino property in Macau.  MGM Cotai still needs to be formally Gazetted and then obtain a construction permit before the 3 year construction timeline can even begin.

 

Here is the timeline for Wynn Cotai:

 

Land Concession Contract:  Sept 12, 2011  

Formal Gazette approval:  May 2, 2012

Building Permit:  ?????

 

Wynn Cotai hasn’t even gotten its construction permit yet.  If this same timeline holds for MGM, then we should expect Gazetting in 8 months and who knows when for the building permit.  Thus, it should be at least a year and more likely two before construction can even begin and 4-5 years before the property would open.  Our original expectation on the timing of the MGM Cotai opening was 2017-2018 so today’s announcement doesn’t change that.

 

We would fade this news.


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